What is anchoring in finance?

Anchoring in finance refers to the cognitive bias where an individual relies heavily on an initial piece of information (the "anchor") when making decisions, particularly in financial contexts. Brad Barrett discusses this concept, illustrating it through various scenarios such as fasting and savings rates. He explains that if, for example, one's anchor for saving is very high (say 50% to 60% of income), then attempting to save a lower percentage (such as 20% to 30%) seems less daunting and more feasible. This mental tool can be strategically utilized in financial decisions to set more ambitious goals or to normalize higher standards 1.